Tough times for small caps: debt costs approach cash generation

Drawing on a Seneca Evercore study, NeoFeed shows that small caps' operating profit covers interest expenses only about 1.3 times, down from 2.5 times two years earlier, and that coverage in retail is already below 1. Ricardo Jacomassi, partner at TCP Partners, notes that retail relies heavily on credit and installment sales and says that, in this situation, a company may have to renegotiate its debt or file for judicial recovery. “Higher interest rates will make money even more expensive,” he says.

Source: NeoFeed, January 14, 2025.